Article excerpt

Abstract

This paper analyzes Pakistan's energy sector issues and highlights (i) the importance of the link between energy and the environment, and (ii) the central importance of energy efficiency for high return demand-side solutions to meet the country's energy needs. The paper argues that energy planning should integrate the external cost of energy use in deciding about the composition of supply: coal, oil, gas, hydropower, renewable, nuclear, and solar. By utilizing external cost estimates made by the European Commission for Europe, and the US National Academy of Sciences, a total cost (external + internal) ranking of primary energy sources for Pakistan is estimated. This estimate is at the low end of the cost spectrum because classic pollutants-sulfur dioxide, nitrogen oxides, carbon monoxide-in Pakistan are significantly higher than in Europe or the US. The paper also discusses the experiences of China and OECD countries in increasing energy-wide efficiency. A central lesson emerging from the analysis is that Pakistan will have to significantly increase its energy-related research and development expenditure in order to adequately address its energy sector issues. A quadrupling from 0.25 % of gross domestic product is recommended over a decade.

Keywords: Energy, policy, environment, Pakistan.

JEL Classification: Q48, Q47, Q5.

I. Introduction

Energy is the life blood of socioeconomic development. It is essential for technological applications that promote productivity increases. The three domains where energy is used are the production of electricity, the extraction/generation of thermal energy (heating and cooling), and transportation. During the past two centuries, fossil fuels (coal, oil, and gas) have been the main sources used to meet humanity's energy requirements. Currently, fossil fuel sustains about 80 percent of global energy needs. But these resources, formed by nature over millions of years, are finite. Large fossil fuel reserves are also unevenly distributed among countries. They are concentrated in a small number of countries with about half the low- and middle-income countries having no or very few oil and gas reserves. Even rich countries are not well endowed with oil and gas, although coal is more widely distributed.

Energy uses and national income per capita are positively correlated. Table-1 gives energy consumption per capita per year for selected countries. Pakistan consumes 490 kilograms of oil equivalent1 (kgoe), China 1,320 and the US, about 7,900. Although the availability of fossil fuel has enabled wealth creation by modern civilization, today we are faced with two major challenges in the utilization of energy. The first is to find adequate substitutes for the declining resources of fossil fuel. The second relates to the link between energy and the environment. The link is evident in all phases of energy production, conversion, and use. In Pakistan, the most serious energy-environment problems are the effects of the emission of particulate matter (TSP, PM10), indoor pollution from the use of biomass fuels, sulfur dioxide (SO2), nitrogen oxide (NOx), carbon monoxide (CO) and heavy metals (lead, mercury) generated by the use of fossil fuel for transportation and generation of electricity (see Table-2). While at the global level, Pakistan is not a significant contributor to the production of carbon dioxide (CO2) (producing 0.9 tons/capita), as we look ahead Pakistan could (like China at 4.6 T CO2/capita) become a significant contributor to climate change. The US generates 19 T CO2/capita and Canada 16.7, but France, due to its use of nuclear energy, generates only 6.2 T CO2/capita.

II. Energy Efficiency and the Energy-Environment Link

Energy efficiency is a measurable quantity. It is the ratio of energy input into a process to energy or work (electricity, heat, transportation) produced by that process. Conservation in use by the final consumer is an integral part of the energy efficiency of an economy. …